Dec 11, 2023 - Economy

Biggest economic threat in '24? Geopolitics.

Illustration: Allie Carl/Axios

The biggest economic threat next year comes from geopolitical bad actors "who with one action can upset economic and market assumptions globally," a new survey of 500 institutional investors finds.

Driving the news: The annual survey from Natixis ranked the threat higher than central bank policy mistakes, consumer pullbacks, or China's sluggish economy.

Why it matters: We're in a post-COVID world now, where relationships and alliances are breaking down.

  • That was evident last year, too, when war was the top economic risk identified in the Natixis survey.
  • The year before that, though, as the world was still emerging from COVID-related shutdowns, investors said the biggest economic risk for 2022 was supply chain disruptions. (They didn't anticipate Russia invading Ukraine.)

Other financial firms are also picking up on similar views:

  • In Bank of America Global Research's fund manager survey, 89% of respondents said geopolitical risk is above normal.
  • BlackRock Investment Institute wrote in a recent paper that historically, geopolitical events have had short-lived market and economic impacts — but that "has changed in the new, more volatile regime … Today we see geopolitics as a structural market risk."

The big picture: "Geopolitical risk is always there, but there are times when it bubbles up higher," Dave Goodsell, executive director of Natixis' Center for Investor Insight, tells Axios.

  • "After seeing how the early stages of the Russian invasion of Ukraine drove big price spikes for energy and food in 2022, institutions have good reason for concern as the geopolitical landscape is looking less stable going into 2024," the Natixis report said.
  • "The survey was fielded just as Hamas unleashed a terror attack on Israel ... and Iran and North Korea tightened alliances with the Kremlin to provide military assistance back to Russia," the report went on.

Zoom in: In the survey, about 70% say they believe a growing alliance between Russia, North Korea, and Iran will lead to greater economic instability.

  • The U.S. elections next year cast a shadow as well: 72% think a messy US campaign will lead to increased market volatility.

The bottom line: Investors can't plan or position around geopolitical wildcards — that's why they can be so worrisome.

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